Panama Canal: One Year Later

This time last year, the $5.25 billion Panama Canal expansion project was completed. The canal reopened with a new set of locks on both the Atlantic and Pacific sides for ships to easily flow through the canal without risk of delay due to accident or various water levels. During the expansion, there was also an excavation of more than 150 cubic meters of material. Post expansion, the new and improved locks have the capability to handle ships three times the size of that prior1. In the past year, logistics and trade experts have witnessed the impact of the expansion on the global supply chain industry.

Appraising Performance and Impact
Prior to the expansion, the most cargo a single ship could move through the Panama Canal was 5,000 TEUs2, but now ships can carry up to 14,000 TEUs with the average vessel size passing through at about 10,500 TEUs3. The greater capacity for larger ships has had an effect on success from the canal to North America’s east coast ports. One year later, making room for larger ships has proven to be successful in the eyes of many involved. Griff Lynch, executive director of the Georgia Ports Authority recently said, “We thought the new locks would have a positive impact, but we did not know it would be as big an impact as it’s been.4” This past May, the Port of Savannah saw an 11.68% increase in TEUs through the port than it did the previous year5.

The improved economy of scale through the canal has had some shippers reevaluate their shipping routes. Some of the most evident shifts have been companies shipping from Asia shifting freight away from the west coast to gulf or east coast ports. In the first five months of 2017, imports from Asia grew 5.8 percent year over year with a larger growth in imports to the east coast6.

Since the shift to the east coast, many ports have had to make improvements to their infrastructure to accommodate the larger ships and influx of freight. It’s estimated that roughly $4.6 billion is needed for the gulf coast ports to update the infrastructure needed to adapt to the larger ships. Ports like Savannah, Georgia, Charleston, South Carolina, New York City, New York, and Philadelphia, Pennsylvania have already begun to invest and make changes. In the New York area, the Bayonne Bridge is being heightened to the appropriate elevation to allow ships of over 18,000 TEU to pass through7.

The shift in freight volume to the east has also had an effect past the ports. For instance, the heightened volumes have generated an increase in demand for inland drayage. Drayage providers have to unload more containers off a single ship then ever before. Once ships are unloaded, transportation capacity is at risk of being strained as more freight moves inland in smaller increments of time. Shippers working with a 3PL can help leverage resources, relationships, and expertise to navigate through the ports8. A 3PL can manage the entire shipping process from overseeing the ocean freight, to once the ship reaches the port, managing the unloading, drayage and transportation of the freight to it’s destination.

Expanding on The Future

The future of the Panama Canal seems to continue to grow. At a recent celebration for the anniversary of the updated canal, Panama Canal Administrator, Jorge Quijano, made promises of furthering the expansion to improve transit capacity in the future9. In the meantime, the Panama Authority is working on developing new technologies to improve the communication and management of freight through the port. The new technology will aid in automating, scheduling, and planning all the moving parts to get ships through the canal10.

Forecasting for future years, the Panama Canal will continue to service ships and cargo. As ships and freight capacity continue to grow, shippers, carriers, and the ports will have to make a decision whether to continue to invest to grow as well. Shippers who believe that the Panama Canal could be an opportunity for their supply chain can discuss options to improve their network with a global logistics partner. A network analysis can compare different routes to determine the best option by speed and cost. In the meantime, ports are working to improve service, while shippers evaluate what routes will benefit them and their customers.